ISA accounts offer a huge range of tax incentives for savers but LISAs specifically also provide a number of other benefits on top of this. LISA holders can receive a Government bonus for home purchases or to boost retirement funding but new research shows many may be missing out on this.
"But if pension rules change in the way that most experts expect, it puts LISAs firmly in top spot.
"There remains a need for the Government to recover the cost of Covid and rumours continue to swirl about the fate of pension tax relief.
"If there were a change, the likely option is a move from offering relief at your highest marginal rate, to a flat rate of relief.
"It’s expected this would be somewhere around 25 or 30 percent. If it’s anything below 35 percent, then the LISA will become the most tax-efficient option for all taxpayers. You’ll still need to factor in any employer contributions from your workplace pension, but once this is exhausted, the next £4,000 should go into your LISA."
Nathan concluded by breaking down the basics on opening a LISA: "You can only open a LISA between the ages of 18 and 39.
"However, once you’ve opened it, you can pay into it until you’re 50 and access it from the age of 60.
"By opening one while you can, you’re insuring against potential pension tax relief changes at any time over the next ten years.
"Right now, millions of people have never heard of the LISA, and even among those who have, they tend to see it as a way to get Government help with building a property deposit, rather than as a way of investing for retirement. So it’s worth getting to grips with LISAs and their retirement income benefits before it’s too late.”
HL detailed as a "rough rule of thumb", if a person is getting employer contributions from a workplace pension, that should be their "first port of call" for retirement savings.
However, once these contributions have been exhausted, meaning workers won't get anymore from their employer if they continue to pay, the next £4,000 of contributions each year should go into a LISA (for basic rate taxpayers.)
This is because the tax relief going in is the same, but a LISA offers tax-free income at the end.
For higher rate taxpayers, they'll "usually be better off" by continuing to pay into a pension because the extra tax relief offsets the tax on pension income.
Self-employed workers should also "start with the LISA" as they will not get any employer contributions to a pension.
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